Stochastics Sell Signal and 50 Day Moving Average Rejection

Since this mini – bear has started in late July the stochastic short term trading indicator has issued three very reliable sell signals and led to major downside price action in the sp500.

The stochastic has been good so far as a sell signal after it has traded ABOVE the 80 percentile line and then had a bearish crossover.  The stochastic indicator has worked well so far because we appear to be in a bear trend.

Now we have another stochastic sell and it would seem that the market could drop once again as it has the three previous occasions.

The issue is that the reliability of the stochastic indicator depends on if we are in a bull market or bear market.  One cannot rule out that tomorrows price action combined with news could completely flip us from mini bear to mini bull.  IF that occurs then it would probably invalidate the most recent stochastic sell indication.

But if we ARE still in a mini-bear or even a major –bear market right now, then the stochastic SHOULD perform as it is intended to do during a bear market.

sp50020110920

So if we are in a bear market then the stochastic should work tomorrow and tell us that the market will SELL HARD the Fed decision news and allow the market to start plunging again, consistent with bear market stochastic action.

My take is that the stochastic will deliver correctly again and allow the market to plunge tomorrow as the market sells the lousy fed news.  BestOnlineTrades is still currently on a BOT Short Signal.

I currently see a double top right near the 50 day moving average after an over extended bear market rally.

I see copper and oil again weak today and telling me today’s rally is a smoke screen.

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5 comments on “Stochastics Sell Signal and 50 Day Moving Average Rejection
  1. JR says:

    This was no rally, it was a reversal!!
    We called it right yesterday!
    Did anyone notice RAXl?
    See our posts for yesterday.
    Kudos to TOM!!

  2. Tom says:

    Yes this looks like a sell signal today once again, volume dried up and we closed lower.

    RAXI does not seem to pull up on charts is that a canadian stock?

  3. JR says:

    No it is RAX, noticed the 1 after I sent it.

    It is a cloud computing company, Here is some info!
    optionMONSTER’s Depth Charge tracking program detected the purchase of about 3,900 November 37 puts for $3.10 to $3.20 and the sale of an equal number of December 25 puts for $0.55. Volume was more than 25 times open interest in both strikes.

    The trade resulted in a debit of about $2.60 and has the potential to earn a maximum profit of 360 percent if the data-hosting stock falls to $25 by Nov. 18 and then holds that level. Known as a diagonal put spread , the strategy uses the additional income from selling longer-dated contracts to cut its cost basis and thus increase leverage.

    The transaction is an example of how investors can turn time into money using options.

    RAX is up 0.42 percent to $37.92 today but has been drifting lower since early July. It now seems to be stalling around $38, which could be an important level because it provided support in June. It’s also the same area where the 50-day moving average is now pushing below the 200-day average, which could lead some chart watchers to believe that a downtrend is taking shape.

    The bearishness has occurred despite RAX beating estimates on the top and bottom lines the last time it reported earnings on Aug. 4. The company’s next quarterly release is scheduled for Nov. 7.

    Overall option volume is 12 times greater than average so far today, with puts outnumbering calls by 24 to 1.

    50 has crossed down over 200 you know I love these crosses. It is very vulnerable and to me it looks like there is quite a bit more on the down side, should be an easy 10%.

  4. Tom says:

    Thanks for sharing.. Yes just looked at it. Wow, looks quite bearish to me, like it want to fall off a cliff… Looks like it can move very fast as well..

  5. ed says:

    The market managed to rally from the bad news last night regarding the Italy downgrade, showing market stength

    We then came back down to about even at the close, which is what one would expect the market to do on the day before the FOMC announcement Wed.

    Tomorrow’s news could give us more direction but I’m looking to the 26th and 27th Bradley turn date and New moon respectively, to kick off the big move down

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